Tower Insurance Limited v Domenico Trustee Limited
[2015] NZCA 372

This Court of Appeal judgment is a decision on an appeal and cross-appeal of the High Court's findings on election under an insurance policy.


Domenico Trustees Ltd (Domenico) owned a house which was left a total loss by the Christchurch earthquakes. The house was insured for replacement value by Tower Insurance Limited (Tower) under a "Provider House Policy Maxi Protection" policy. Tower admitted liability for the damage, but Domenico and Tower were unable to agree on an amount payable under the policy.

Tower made offers of settlement to Domenico, recording that the right in the policy for a cash payout was for indemnity value only, but that Tower was currently offering cash settlement on the basis of the full rebuild cost.

Domenico issued proceeding in the High Court claiming that Tower had elected to settle the claim by way of cash payment for the rebuild amount, and seeking $842,392.

The High Court

In the High Court, Gendall J confirmed that Tower had the right to elect between reinstatement, replacement, repair, and payment. He noted that "a party purporting to make an election under a policy can only make a choice between the suite of options available to it under that contract", and that in this case Domenico was claiming that an election had been made for an option that was not provided in the policy.

Justice Gendall pointed out that the election claimed by Domenico could only be achieved by Tower having waived its right to insist on the reinstatement costs being incurred before it was obliged to make payment. Waiver was not pleaded by Domenico, and so Gendall J could not make a decision on whether or not waiver had occurred.

Justice Gendall therefore decided that Tower had not made an election.

Justice Gendall then went on to consider whether there had been election through delay. He said that a party entitled to make an election had a reasonable time to make that election, and if they did not make it then the law would make it for that party. He therefore decided that Tower is deemed to have elected to settle the policy by making a cash payout. As the election can only be for an option under the policy, this is an election to pay indemnity value, unless and until Domenico rebuilds or purchases another house, when Tower's liability will increase to cover that additional cost.

Tower appealed Gendall J's decision that there had been an election through delay, and Domenico cross-appealed on the decision that there had been no election to make a cash payment for the rebuild estimate.

The Court of Appeal

The Court of Appeal first considered whether there had been an election to settle on a cash basis for the full rebuild amount. They looked at the offers that were made, and said that they were:

"plainly offers made in the course of negotiations, which were not accepted by Domenico. They could not by any stretch be treated as an unequivocal and binding election by TOWER as to the mode of settlement."

They therefore agreed with Gendall J that there had been no unequivocal election by Tower.

The Court of Appeal then went on to consider whether there had been an election through delay. Here they disagreed with Gendall J's decision that if a decision has not been made in a reasonable time then the law will make it. Instead, they decided that:

"if an insurer is in breach of its obligation to make a decision within a reasonable time, the court may order the insurer to make an election. Breach of any such order would risk the insurer being in contempt of court with all the consequences that might flow from that. Damages may also be an available remedy."

The Court of Appeal did note that the usual practice in the Earthquake List was for the parties to be asked during the case management process whether an election had been made, and if not, to give directions for the election to be made. They remarked that "that seems to us to be an eminently practical way of dealing with the issue."

They also decided that it was not open on the pleadings for Gendall J to have made a decision that there had been an election through delay. They noted that:

"If the Judge was contemplating a finding that was plainly outside the pleadings and argument, he ought to have given the opportunity to both sides to address the issue and to seek an amendment to the pleadings. That did not occur."

Tower's appeal on the issue of election through delay was therefore allowed.

The end result

This proceeding has now been sent back to the High Court for a rehearing. If a settlement isn't reached between the parties, it seems likely that Domenico will try to amend its claim to resolve some of the pleading deficiencies revealed through these judgments.

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